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Sovereignty is central in any mortgage initiative

WASHINGTON, D.C. - One of the senior housing officials of the U.S. government, in an acknowledgement of the sovereignty of American Indian tribes, has said tribes "have to be at the center" of any successful mortgage initiatives on their homelands.

Bruce Morrison, chairman of the Federal Housing Finance Board, said, "It's their land, and it's their legal system that will provide the underpinnings for a successful mortgage product. If you build from that direction out, you'll have much more likelihood of success."

Morrison said that whatever adjustments tribes may make to their codes "they must make voluntarily. And they will make it voluntarily in exchange for a benefit for their members."

Acknowledging this is a lot better than a usual method which is to "arrive with something and tell them if you want this, you've got to do this, he said, "It's just backwards. And I think people, in wishing to do the very best thing, have sometimes arrived creating a confrontation over the subject rather than coming at it in the other direction."

The board regulates the Federal Home Loan Bank System, a government-sponsored enterprise that loans money to institutions like banks, savings and loans and credit unions that then lend it out to consumers.

Morrison said that credit issues are important in Indian lending, and that they need to be dealt with at the tribal level from the ground up. "This is the thing that Indian tribes need to grapple with - default risk and all that goes with it. What happens when (they default). Because if you don't solve that problem, you can't get people to voluntarily risk their money."

He suggested a new program the FHLBS has started could provide essential liquidity for Indian mortgage lending, saying "the Federal Home Loan Banks can take as many loans as could be made in Indian country over the next decade onto their books without sweat, as long as we can design a structure to enhance the credit quality up to triple B or better."

He suggested that mortgage originators, working with the tribes, should design those structures, which might include U.S. government guarantees, tribal guarantees, default funds and other things to ensure "that when you get all done you're going to say the risk to the pool of loans is going to be sufficiently low. There's too much glossing over of this reality, and that's why we make one loan every six months, in these excruciatingly processes."

The new program is called Mortgage Partnership Finance, and it could be used to buy private or government mortgages from the lending institutions, giving them an incentive to make Indian mortgages because they know there is someone willing to buy them.

The Department of Housing and Urban Development's Section 184 guaranteed Indian mortgage program would be a good candidate for the MPF, the chairman feels, because with the government payback guarantee "the credit issue is solved." The chairman was unaware of any lender that has funded a HUD 184 through the MPF, but he said a number of the Federal Home Loan Banks (there are 12) were interested in doing them. More than seven hundred HUD 184 loans have been closed, with most being bought by Fannie Mae, a competitor of the MPF.

"There's actually a proposal right now in the Seattle Bank to buy bonds from the Navajos, an alternative way of doing something that would be in the control of the Navajo Nation directly."

Morrison said the system is discussing other initiatives in Indian country, but that he is not at liberty to discuss them yet.